Sunday, December 28, 2008

One short trading week on light volume is behind. Another short week is still ahead. As a rule, Holiday season is marked by low trading volume and the current period is not an exception. Last week in my "Index Analysis" post I have mentioned a possibility of move down - that what we have got. Now the situation is a little bit opposite and I would say that looking at my technical analysis I see some higher odds of move up. Again, the same as last week I did not expected strong movements, I would not expected a strong rally during the next week either, mainly because of light trading volume.

Wednesday, December 24, 2008

I do not know how many people read my blog, still I wish everybody happy Holidays.

Merry Christmas to everybody! I hope that people still remember that this day is not about Santa Clause (St. Nicolas) only but more about faith, hope, love and our salvation. Let's forget for a moment about all the bad stuff we had in the past. Whatever we lost (not only money) could be found again as long as we do not lose faith, hope and love.

Sunday, December 21, 2008

Four weeks ago in my DJI post (on 11/23/2008) I have posted the following chart with statement that the market has set new support. I would like to point again to the same DJI chart:

After 10/10 support (October 10, 2008 support level) the stock market and indexes did moved flat for a month until November 5, 2008 when they started to decline again. Now, it is a months after 11/21 support (support on November 20-21, 2008) and the logical question could be "should we expect to see reversal soon since there is a possibility that the stock market has stepped back from it's November's extremely oversold levels and accumulated some Bullish volume in December?"

We had first strong volume surges with setting a support level on September 18, 2008, second on October 10, 2008 and the third one (most recent) on November 21, 2008. Each of this volume surges during the index declined pushed the indexes into oversold condition and every time market become oversold stronger and stronger. If on September 18, 2008 the market reacted on high volume by strong one-day rally up (about 10% in a single session), then after 10/10 bottom (market was stronger oversold) the reaction on high bearish volume was expressed by 1-month up and flat move with about 16% recovery. The last time, on November 21, 2008, when after high volume surges the stock market has become oversold even stronger then on 10/10, the market respectfully reacted stronger - we have one month up move and indexes (S&P 500, Nasdaq 100 and DJI) with 22-25% recovery.

The market is still could be considered strongly oversold because of the high Bearish volume on 9/18, 10/10 and 11/21, yet, I would weighted it as longer-term oversold condition. Over the shorter term we see some overbought levels - should not be a surprise with more than 20% up over a month - which may push indexes and whole market down, not necessary into another crash, yet on my opinion we may see an attempt to retest 11/21 bottom.

I would never try to guess what is going to happened to the market in several month or in a year - this is a job for fundamental analysts. What I do: I track if there is possibility of trend changes in the shorter term and then I monitor these changes for a possibility of developing them into stronger recovery or stronger crash. Right now, I see that indexes (S&P 500, DJI and Nasdaq 100) signal a possibility of the move down (keep in mind that I could be wrong, I'm just an average trader). The S&P 500 chart below explains my worries (Nasdaq 100 and DJI charts have similar look):

Last week, in my S&P 500 Analysis post I mentioned that red MVO (volume surge during the price decline) may push the S&P 500 index up (we had up-move this week). Now, my main concern is that green MVO (volume surge during the price advance) may push the indexes down. The rest of technical indicators, including Stochastics, RSI (Relative Strength Index), SBV, McClellan Oscillator are bearish on this chart as well.

Friday, December 19, 2008

Automakers received what they wanted. I like the requirements that were put on the them in relation to the UAW. I already mentioned last week and today's news and Government action confirmed that UAW is the main reason why the auto business has be become unprofitable. I still afraid that this bailout could become a waste of money. I'm still not convicted that it would not be better to spend these $13B on the development of new productions that would create working places. Example: $1B is required to build a plant for production of Lithium batteries for cars - there is zero of such plants in USA and 14 in China..

It looks like today's market reaction on this bailout was not very happy. Positive sentiment at the market open fainted very fast with DOW below zero by the end of the session. I think many investors are looking at this bailout as just a delay. What is next? GM and Chrysler already told that these money would be enough for a month only. It means that in January 2009 we have to expect them to step forward and start begging and threatening again. The Government attempted to delay bailout and that tells me that the Government considers it extremely risky "investment" after looking at the numbers they have and Bush statement "Preventing disorderly bankruptcy" makes me expect orderly bankruptcy instead.

Monday, December 15, 2008

I have stated in my last week "S&P 500 Chart" post about a possibility of breaking the November 28, 2008 highs and that this could mean that we will not see indexes moving down to November 21, 2008 lows soon. This week we saw the indexes (Nasdaq 100, S&P 500 and DJI) moved above these levels. After that the S&P 500 and DJI dropped back below the November 28th High, yet, the Nasdaq 100 index still stays above this level.

A week ago (read my previous week post) we had a short-term overbought market and three negative sessions during the past week confirmed it. Right now my technical analysis is more optimistic than a week ago. The current week decline released the indexes from the short-term oversold conditions, if not fully then at least partially. Red MVO and SBV on December 12, 2008 (see chart below) confirms that: red MVO indicates high volume activity (volume surge) during the price decline or "panic selling", red SBV indicates the Bearish volume accumulation (negative money flow).

Overall at this moment I see more Bullish signals than Bearish. Stochastics, MACD, RSI, SBV on my chart rising, VIX (volatility index) declines - all of this in the favor of the up-move. The exception is McClellan Oscillator which declines and which is Bearish.

The market is still highly volatile. If a year ago 1-2% run in either direction was a big event, right now we consider it as quiet session. The highly volatile market require constant monitoring and I would not recommend rely on my weekly analysis simply because the sentiment in volatile markets changes sharply and only monitoring charts during trading hours may help spot the reversal points in time. I'm sorry, I cannot do any posting during the week - there is other stuff that has to be done.

Sunday, December 14, 2008

As I told before one or another way the Automakers will receive the money they crying for. Do they really need them? If their business has become unprofitable the bailout will not help but only will delay the dead end. How to become profitable - almost impossible because for that the wages has to be cut in half and autoworkers union will not let to do it, they would rather let it crush than give their power away. I think that after automakers receive money they will continue to layoff people and ask for more money. It could be the best to let it go. Yes, some companies will crush, yet, if there is a demand on the cars, somebody will replace them. If there is no demand on the cars then no bailout help them - it's simple - then it's only waste of time and waste of money. The excuse that other businesses will be damage is wrong. Only those businesses that oversupplied the market will be damaged. If people stop buying new cars then they will start to repair the old cars, that means that there is still going to be demand on the car's parts and it is going to boost new repair businesses which still will need car parts. Yes, some drillers will be shut down, but do we not need so many of them?

Recession is a process of "natural selection" when overweight animals die. This is not the end of the evolution. When lazy, fat, spoiled animals die it clears pass for new blood, for strong, creative, not spoiled youngest who desire to work and get to the top.

$60 Billions is $10K for 6 million people - it's about 4 million families (about 10 millions people) may survive for a year. Think about that. Instead of helping the dying from extra weight animals these money could be spend to help people to survive the recession, to boost new businesses, to create new jobs.

Sunday, December 7, 2008

Let's put aside automaker's business and take a look at technical analysis to see what indicators tell us. Overall, the hourly charts (1 bar = 1 hour) are similar on all major indexes (NASDAQ 100, S&P 500 and Dow Jones Industrial) and majority of the indicators are pointing to the dominance of the Bullish sentiment. The question is, for how long? Until the November 28, 2009 high is hit?

There is no doubt that the market has set new support level on November 21, 2009 (see my "DJI Analysis" post) and it looks like November 28, 2009 high is another sensitive point that should be watch closely. If the indexes break this high and move higher, there is a possibility that we will not be back down soon. Yet, if this is not the end of recession and the market meant to be even lower, most likely we will see bounce from this top with further attempt to retest the November 21 support.

So far the indicators are Bullish, however the recent recovery has pushed the stock market into the short-term oversold condition. The market is still very volatile and what seems today Bullish may turn into strong Bearish tomorrow. That is why I still consider monitoring charts during the trading hours as very important part of trading. This is not a time when you can come to the chart once a day after the market closes or once a week. I do not believe in the mid-term trading now either, you may trade short-time or for long-term investment you may use simple strategy "Buy every time you see big volume surges during the decline".

By some reason I have high degree of confidence that automakers will receive their $25B. The only thing I think they are doing now is looking for a "wrapping paper" to sell it to taxpayers under an umbrella that it is done for their own good - the same as with finacial sector bailout.

If you have a company and you have to pay your loans and debts and you have a product that you cannot sell then you have to find out how to survive. First thing you have to do is to sell the product you, at least part of it and get cash. If you cannot sell it, then you drop the price and sell it any way. You receive cash and it will buy you some time to restructure your production to make it profitable again. If automakers cannot do it then there is something very bad in their structure of business and $25B will not help them, it will only delay the death sentence… unless they need it for something else… as banks used bailout money to buy other banks…

People do not have money to buy cars and nobody wants to lend to people because they already in too big debt, house foreclosure or without job. You want to sell cars, drop the price.

What government can do beside $25B to help automakers on my opinion is

1. Increase taxes on the cars that are made oversea – you have to protect your own market.2. Increase taxes on American cars made outside of USA – it is wrong when USA owned companies build plants in Mexico to sell product in USA.3. Decrease taxes on the cars that are made in USA by American workers even if this is not American cars – it should attract overseas investments4. Decrease taxes on the cars that are made overseas if 80% of the car is made from the details produced on the plants in USA – invite overseas companies to buy supplies made in USA.5. "Layoff" union. Here government can make a compromise and give authority to the company over the union with power to close it if company guarantee that 100% of its employee have medical coverage. Union is "business killing" machine that constantly working on production cost increase and development slowdown.

There could be other points, yet, I doubt the government can do even any of above. And it is not only about car. I always frustrated when I see something in a store that is made in China but made from American material. Why is it more profitable for Chinese businessman to buy supply in USA, ship it to China, make product, ship it back to USA, sell it in USA, pay taxes in USA and China. Why does Chinese businessman not buying supply in USA, make product in USA, sell it in USA and pay taxes only in USA? Isn’t there something wrong in this chain?…

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